Summary:

In a recent interview with Found|READ, VC Ray Rothrock of Venrock made a startling admission: “Venture Capital is really all about pattern recognition. We look for patterns it the market, patterns in entrepreneurs, cultural patterns at the startups pitching us.” Pattern recognition is important for founders, […]

In a recent interview with Found|READ, VC Ray Rothrock of Venrock made a startling admission:

“Venture Capital is really all about pattern recognition. We look for patterns it the market, patterns in entrepreneurs, cultural patterns at the startups pitching us.”

Pattern recognition is important for founders, too, especially when it comes to identifying the patterns that suggest a market is evolving and expanding = new business opportunities.

We found a nice mini-case study of this phenomenon in a recent post on Read/WriteWeb about the evolution of personal publishing. It is based on a new essay by the very thoughtful VC, Fred Wilson, on why and how the latest iterations of personal publishing, Twitter and Tumblr, evolved out of the earliest forms, such as Movable Type and WordPress. It’s no accident, he says, it’s verticalization. (Read Wilson’s original post here.)

We think Wilson’s analysis of the personal publishing space is useful not just for what it says about the evolution of that particular market, but also as an exercise in recognizing the pattern(s) of any market in evolution.

Fred writes about the culmination of personal publishing represented by Tumblr and Twitter:

But my gut tells me that combining the personal expression elements of blogging with the emotional aspect of social networking in a lightweight manner that allows anyone to be a blogger with ease and not much commitment (think iphone walking down the street and seeing something cool), will yield a very large market of people who both consume and contribute content in these social blogging systems.

So one potential pattern of a market in expansion is represented in the itals above: the pattern is one where user-experiences are compounded and simplified at the same time, allowing us to do more with less (less effort; less money, etc.) The very same pattern can be seen in the evolution of, say, network infrastructure (more data; fewer servers; less time, etc.).

R/WW makes further observations on the evolution pattern in the personal publishing market. First people had static static websites. Then blogs morphed websites into dynamic online diaries.

blogging platforms made it easier for people to publish online without having to deal with HTML. Liberated from the need to deal with technical quirks, people finally had the chance to focus on the content. And they did.

Again, it’s more (content) with less (headache).

Then social networks added even more ‘ease-of-use’ (more for even less) and we hit the next level: multi-demographic personal publishing, as opposed to publishing in a niche demographic.

[with social networks] the publishing occurs in the context of socializing and therefore is transparent. More important, it is perceived as easy. Writing a long blog post is much harder than posting a photo.

Then Twitter and Tumblr add “compactness” to the pattern of ‘more for less’ and it evolves again into microblogging:

The idea of expressing of what you are doing right now in less than 140 characters is clever, but remixing other users’ posts and allowing people to subscribe to each other’s messages was the stroke of genius that made Twitter a hit… Tumblr dramatically simplifies blogging in the same way that blogs simplified web sites … focusing each post on a single object – a photo, a video, a link…

In network optimization we might liken this to leveraging the capacity of a “window” or “frame” to carry more bytes per trip across the network: ‘compactness’ means we can send/convey/do more with less, as you can on Twitter and Tumblr. As Wilson describes Tumblr: ” [you] can create a tumblog of your very own without ever posting anything directly to tumblr.” Customized personal publishing with almost no effort.

R/WW concludes “the personal publishing market evolved from cumbersome web sites to online diaries called blogs to social networks and more recently to microblogs.” Wilson refers to this evolution as a “verticalization.”

In truth many markets in evolution are actually being “verticalized.” And later today I’ll be posting an interview with a three-time founder who believes that business models always evolve through verticalization, too. It’s a pattern. (Tune in, Zack Rinat of Model N is worth reading about.)

The point here is use the example of the evolution of personal publishing to identify one important pattern, so that you can recognize it when it begins to happen in your own industry. The sooner you do this, the sooner you see the next round of business opportunities. As Ray Rothrock says, there are all kinds of patterns that must be recognized if we are to be succesful in business. Verticalization is just one of them. We’ll address more in future posts.

Is your market being verticalized? How can you tell?

What other important patterns do you see in your industry that inform your strategic thinking?

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